Interest only overpayment question

IanP19

Hi, 
I'm hoping someone can help clarify an interest only question. I've been looking at getting an interest only mortgage, to replace my repayment mortgage.

The reason for this is that might job might not be safe in the near future so my plan is to switch to interest only as I'm currently on SVR.

My plan was to keep paying the same amount now as an overpayment. But I've read conflicting articles that say that if you make overpayments it doesn't take the capital off. Is anyone able to clarify? 

Thrugelmir

You may well struggle to find an interest only mortgage in the current market. Why are you on the lenders SVR currently? Better to lock in into a cheaper rate. 

IanP19

Thrugelmir said:

You may well struggle to find an interest only mortgage in the current market. Why are you on the lenders SVR currently? Better to lock in into a cheaper rate. 

Thanks for your reply, I think I will be able to get an interest only mortgage without any issues.

I'm currently on SVR as my solicitor messed up my repayment of a help to buy loan, and I was trying to remove this so I could have more options in the market.

luvchocolate

My interest only mortgage is overpaid every month. Every year on my statement it shows the new payment which is reduced due the over payment 
I just continue to overpay and it shows as less owing. 
Hope that makes sense 

tacpot12

I think the articles that say overpayments on an interest-only mortgage don't reduce the capital owed are wrong, or have a specific product in mind. Check with any lender that if you do over-pay it will immediately reduce the amount owed (products that calculate interest daily should do this automatically). 

IanP19

Thanks, it was always my understanding that overpayments reduce to the capital. But like I said a few articles stated that it doesn't. 

getmore4less

Link to the articles so people can comment. 

It like the articles on MSE that are often wrong or misleading like the one that says when overpaying reduce term not payment. 

pieroabcd

HI, I have a question on the same subject.
If I do regular overpayments on an interest only mortgage, will the overpayment go against the capital or against the interest?
For example, if with an IO mortgage of 300k  I pay 40k  one off as overpayment (in addition to the monthly installments), at the end of the mortgage will I owe the bank 300k-40 = 260k or still 300k but with a lower monthly installment?
Will the mortgage close early if I keep on paying early every year by a large amount?

I know that with a repayment morthage the game above will close the mortgage early, but I don't understand how it works with interest-only.

Thanks.

Thrugelmir

Any payment made will reduce the capital balance owed and therefore reduce the ongoing interest charges. (With the proviso that the interest rate on the product doesn't increase)